Bad Times Loom for Physical Suppliers as US OW Bunker Proceedings Reach Major Milestone

Bruce G. Paulsen is a partner at law firm Seward & Kissel LLP acting on behalf of ING in the U.S.

With the so-called "Res Cogitans" OW Bunker test case in the UK wrapped up earlier this month, attentions now turn to the raft of litigation being undertaken in the U.S. where this month a major milestone has been reached.

Unlike in the UK, where focus was on a single test case, in the U.S. there are approximately 50 cases pending nationwide, with some 30 interpleader cases brought together before a single judge in the New York Southern District Court.

Over the last year and a half, global injunctions were put into effect preventing those involved in the interpleader from attempting to collect outside of the actions anywhere in the world.

Judge Valerie E. Caproni has sought to establish some of the individual interpleader cases as test cases, but there have also been a number of individual interpleader actions taken around the country.

As previously reported by Ship & Bunker, two such cases heard earlier this year involve physical suppliers O'Rourke Marine Services (O'Rourke) and Valero Marketing & Supply Co. (Valero).

In both of those instances, the suppliers have tried to arrest the vessel they supplied through OW Bunker, only to be told that they failed to meet the criteria for a Maritime Lien.

This is because under the U.S. Commercial Instruments and Maritime Lien Act (CIMLA), there are three requirements for a valid maritime lien:

1. the party provided the necessaries, in this case, the bunkers, as defined by the Commercial Instruments and Maritime Liens Act (CIMLA) and related jurisprudence,
2. the necessaries were provided to a vessel, and that
3. the claimant provided the necessaries on the order of the owner or a person authorised by the owner.

Both courts found that because the physical suppliers had contracted through the intermediary of OW Bunker, they failed to meet that third criteria - they did not provide bunkers on the order of the owner or a person authorised by the owner.

OW Bunker, on the other hand, did deal directly with the buyer and was therefore entitled to be paid in full.

The Right Decision

As OW Bunker's assignee this is good news for ING, and intermediaries in general, but potentially incredibly problematic for physical suppliers, as it leaves them no course of action under which they can recover the cost of their bunkers, except in bankruptcy.

"We believe it was the right decision," Bruce G. Paulsen, a partner at law firm Seward & Kissel LLP acting on behalf of ING in the U.S. told Ship & Bunker this week.

"I'm not sure physical suppliers should be that surprised, as the requirements of CIMLA are clear."

If the law is so clear, it does beg the question as to why no-one has noticed this before, as the ability for physical suppliers to enforce a Maritime lien is fundamental to the way they do business.

That said, both decisions are not directly binding on other judges, and it is understood both suppliers are in the process of appealing their respective decisions.

It is worth noting at this point that the O'Rourke and Valero rulings leave U.S. physical suppliers in a different situation than in the Res Cogitans ruling.

There, the UK Supreme Court has found only that ING Bank should be paid; the door has been left open for the physical supplier to make its claim too, which if successful, would leave the shipowner paying the same bunker bill twice.

U.S. Cases Move Forward

Meanwhile, in the interpleader, U.S. Oil Trading L.L.C. (US Oil) had argued that the world-wide nature of the injunction was improper.

After a number of appeals were struck down, on May 6, 2016 Caproni confirmed the court's authority to make a global restraint.

On, perhaps ominously for the physical suppliers, Friday 13th of May, 2016, a number of filings were made in the interpleader, a key one being a motion for summary judgement by ING Bank in one of the test cases, Clearlake Shipping Pte Ltd. v. O.W. Bunker (Switzerland) SA et al.

In the motion, ING argues that for the same reasoning found in the O'Rourke and Valero cases earlier this year, the physical supplier in that case (Nustar Energy Services Inc) does not meet the criteria for a maritime lien, and that ING is the correct party to be paid in full.

With the apparent clarity of CIMLA, that physical players who supply bunkers through an intermediary are not entitled to a maritime lien, the outlook for U.S. physical suppliers appears to be somewhat gloomy.

"We still have some way to go before decisions are issued," Paulsen told Ship & Bunker.

"The shipowners have filed their briefs concerning discharge, we have four weeks to respond to those, and then there is another round of briefings. July 8 is the date when the motions will be fully briefed, and decisions will be issued thereafter."

Physical suppliers may want to make a note of that date.